Alcoa’s (NYSE:AA) efforts to diversify geographically received a significant boost late last month when its joint venture with the Saudi Arabian Mining Company (Ma’aden) secured a $1 billion loan for the aluminum smelter and rolling mill at Ras Az Zawr.  Alcoa owns a 25% stake in the JV named Ma’aden Bauxite and Alumina Company which is expected to commence operations in 2013-2014. Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum and alumina. Its competitors include Rusal, Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH).
We have a $19.75 price estimate for Alcoa, roughly 10% above the stock’s market price.
The Ma’aden-Alcoa super-project in detail
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Ma’aden and Alcoa agreed to work together on the $10.8 billion super project in December 2009.  The project is slated for completion in 2 phases. Phase 1 will involve the construction of a 740,000 tonne-per-year smelter and a 460,000 tonne-per-year rolling mill and will start operations in early 2013. A bauxite mine with an annual capacity of 4 million tonnes and a refinery to process 1.8 million tonnes of alumina every year are a part of Phase 2 and will be operational in early 2014.
What this means for Alcoa
The loan approval represents yet another significant step for Alcoa towards the completion of the ambitious project. This loan is towards Phase 2 of the project, which is expected to cost about $3.6 billion to construct.  Around 60% of this amount is expected to be financed through the Public Investment Fund, Saudi Industrial Development Fund, and other financial institutions and commercial banks – with the remaining amount shared by Ma’aden and Alcoa on a pro-rata basis. This represents a capital expenditure of about $360 million for Alcoa over the next 2-3 years.
Once the project is completed, Alcoa will see a marked increase in its aluminium production capacity. We capture the company’s aluminium sales under our primary metals division.
With the project being a vertically-integrated complex, Alcoa will also see an increase in its alumina and flat-rolled products sales – represented by its 25.1% stake in the JV.Notes: